Achieving Carbon Neutrality: Allowances

Lindsay Jones
Lindsay Jones

We looked at the history and variety of carbon offsets, but there is another way to achieve carbon neutrality that is little known about in business circles but well regarded in the energy and environmental community.

Businesses are missing out.

They care called carbon allowances. Like Renewable Energy Certificates, carbon allowances have as a strong suit that they are verifiable. They are also limited in number, and cleared through the government and therefore much less susceptible to fraud.

Even if you’ve never heard the phrase carbon allowance, you have heard of them in another guise: “cap and trade.” A cap and trade market is a government-regulated market in which a cap is set on a total amount of pollution permits in a region. In order to pollute, power plants and other regulated entities must have a permit to do so. If you need more permits you can buy them from other plants, but the total number is capped, ensuring the pollution is limited to a fixed level.

By buying a carbon pollution permit (a carbon allowance) and not using it, any organization can effectively lower the cap of carbon pollution.

There are several functioning carbon cap and trade markets in the world where these permits can be bought. The European Union developed the first carbon cap and trade market. There are markets in Tokyo and South Korea, too. The first carbon cap and trade market in the United Sates began in 2005, and is called the Regional Greenhouse Gas Initiative (RGGI). It operates in nine Northeastern and Mid-Atlantic States including New York. In 2013, California began its own cap and trade market for carbon. Its mandate is broader than RGGI which only regulates power plants and affects any organization with very large carbon emissions.

These markets have all had to overcome challenges. The European Union scheme at first was not impactful because the cap was too high. The RGGI market had a similar problem of excess permits, and it resolved this problem by cutting the cap by 60% in 2014.

With these markets now functioning, organizations or individuals that want to reduce their carbon footprint in dependable, measureable ways have a venue to do so.

Unfortunately, a wall of paperwork and requirements stands in the way. For many markets, the minimum biz size is 1,000 tons of carbon dioxide. That’s 100 times as large as the average American’s carbon footprint of ten tons per year. For a family of four, you could pre-buy your allowances for the next 25 years, but that’s not very appealing to many.

What about businesses that have footprints in the thousands or millions of tons? They are in better shape, but they need to get through the hundreds of pages or regulatory paperwork. It’s not easy but it is doable with a large team, especially one well versed in utility-bureaucracy and regulation.

Fortunately, there are also organizations like the independently-governed, non-profit 501c3 that Carbon Lighthouse started – Carbon Lighthouse Association– that are already registered in these markets. Businesses and individuals can purchase carbon allowances through it. Thanks to carbon allowances, businesses and individuals are now empowered to become carbon neutral, verifiably, by cutting carbon emissions directly at the source.

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